Reference no: EM133061493
Question - Variable and Absorption Costing - Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows:
Sales (75,000 units) $4,500,000
Production costs (80,000 units)
Direct material 1,320,000
Direct labor 1,080,000
Manufacturing overhead:
Variable 816,000
Fixed 480,000
Operating expenses:
Variable 252,000
Fixed 360,000
Depreciation on equipment 90,000
Real estate taxes 27,000
Personal property taxes (inventory & equipment) 43,200
Personnel department expenses 45,000
a. Prepare an income statement based on full absorption costing.
b. Prepare an income statement based on variable costing.
c. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $45 per unit. Which income statement presents the most relevant data? Answer
Determine the apparent profit or loss on the special order based solely on these data.
d. If the ending inventory is destroyed by fire, which costing approach would you use as a basis for filing an insurance claim for the fire loss? Why?
Select the most appropriate statement.
A- Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.
B- Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.